From Briefing.com: Close Dow -5.83 at 8601.69, S&P -0.43 at 908.60, Nasdaq +2.17 at 1387.02: There were no rallies today as the market languished under the weight of a Home Depot (HD 21.38 -3.50) earnings warning and rising energy prices, which sparked concerns about the pace of economic activity... Neither development, though, rattled investors to any great degree as the market traded in resilient fashion throughout the session with the indices vacillating on either side of the unchanged mark...
By and large, it was admirable that the market held in as well as it did as that resilience reflects an underlying sense of optimism that, the Home Depot warning and higher energy prices notwithstanding, better times lie ahead for the economy in 2003... Fittingly, a better than expected Construction Spending report for November, better than expected reports on the pace of December auto sales, and an awareness that President Bush will be proposing a new economic stimulus package next week provided a measure of support to the proceedings... Even so, the market still struggled to build on yesterday's rally as Home Depot, and home-related stocks, weighed heavily on the action...
Despite reaffirming Q4 estimates, both Lowe's (LOW 36.92 -2.43) and Black & Decker (BDK 40.01 -4.20) were dragged lower by Home Depot's acknowledgment that the challenging environment is likely to persist well into its next fiscal year... That concession, combined with a forecast for a winter storm in the Northeast this weekend and the jump in energy prices that will impose an added tax on the consumer, took its toll on retail stocks in general... The few standouts in that area were the drug store issues, which were bolstered by a better than expected fiscal Q1 earnings report from Walgreen (WAG 32.16 +2.06)...
Other winning standouts, and supports for the broader market, were the drug, chip equipment, telecom equipment, and gold stocks... The latter rallied in conjunction with gold prices (+$5.10 at $351.60/oz), which hit a new 52-wk high... Elsewhere on the commodity front, heating oil, crude oil, and natural gas prices all rose noticeably, bolstered by supply disruptions from the Venezuelan strike, concerns about war with Iraq, and cold weather... Within the Dow, Johnson & Johnson (JNJ 56.81 +1.48) and Eastman Kodak (EK 37.43 +1.59) helped offset the losses in HD...
Strikingly, a late-day push from buyers left the Nasdaq Composite trading just above its 50-day simple moving average at 1386... As has been the case of late, volume levels at the NYSE and Nasdaq were on the lighter side of things... Nasdaq 100 +0.4%, Russell 2000 -0.6%, SOX +1.8%, S&P Midcap 400 -0.5%, NYSE Adv/Dec 1759/1508, Nasdaq Adv/Dec 1522/1676
2:00PM Integrated Circuit Q4 revs top expectations; reaffirms EPS (ICST) 20.13 +1.45: Co reports that DecQ revenues rose 7% sequentially vs previous guidance of 3-5%. ICST also announces that it expects to meet EPS guidance of $0.22-$0.23 for the qtr.
2:05PM ADTRAN cut to Underweight from Equal Weight at Morgan Stanley (ADTN) 36.29 +2.76: -- Update -- Stock gives back a point over the course of about 5 minutes following an intraday downgrade by Morgan Stanley to Underweight from Equal Weight. We would assume that the downgrade is based on valuation, but do not have details yet.
1:21PM ADTRAN -- Daily Breakout (ADTN) 36.18 +2.65: -- Update -- Shares of Nasdaq-traded ADTRAN are posting a 7.9% gain today. The $1.35 bln market-cap company makes a range of high-speed network access products. The shares have broken to a new 52-week high today after the company guided higher last night. ADTN raised its Q4 forecast to a range of $0.30-$0.32 versus the Multex consensus of $0.21 per share. Factoring in the revised guidance, co is projected to earn roughly $0.84 this yr (p/e 43.0).
10:45AM ADTRAN (ADTN) 36.19 +2.66: Needham & Co downgrades Buy to HOLD. Target $25 to $33. As stock has shown exceptional strength recently and has moved well ahead of firm's 12-18 month price target of $25.
8:24AM ADTRAN cut to Hold at Needham despite upward guidance (ADTN) 33.53: -- Update -- Needham downgrades to HOLD from Buy on valuation. Although co issued guidance last night that was significantly ahead of estimates, recent price appreciation has pushed ADTN well above firm's $25 price target (which Needham is now upping to $33). With the stock trading close to the $33 level, firm finds "no legal alternative but to downgrade this excellent company from Buy to Hold." Stock trading at $34.73 in pre-market.
7:18AM ADTRAN boosts Q4 outlook (ADTN) 33.53: Manufacturer of telecom equipment products raises its Q4 forecast to a range of $0.30-$0.32 -- Multex consensus $0.21. Co puts revs at approx $88 mln (consensus $86.66 mln). "In addition to revenue coming in at the high end of previous guidance, we experienced significantly higher gross margins as a result of product cost reduction efforts and a favorable product mix. We also benefited from lower than anticipated operating expenses.
10:26AM Nasdaq tests 50-day simple moving avg : -- Technical -- Index backs off following its first test of the 50-day simple moving avg at 1386. Look for initial support at 1380 followed by an additional floor at 1376 which marks its 20-day exponential moving avg. If those two levels fail, next supports rest at 1367 and 1360. To the upside continue to look for initial resistance at the 50-day sma of 1386 followed by additional overhead at 1392 and 1400. For a more complete assessment of the current technical outlook, please click here.
10:06AM S&P 500 intraday levels : -- Technical -- Minor corrective action took hold after the failure late yesterday and off the open to take out resistance in the 910 area. However, short term support between 903.50 and 902.44 (50 day sma) held firm with the index back on the move to the upside. Next resistances are at 911.22/911.86 (range top/50% retrace of Dec slide) followed by the 914/915 area.
10:02AM Construction Spending +0.3% vs +0.1% consensus : Construction spending was slightly better than expected in November, rising 0.3% vs the 0.1% consensus. Residential spending remained strong, rising 0.9%, while nonresidential spending fell 0.1% after a 1.5% increase in the prior month. Though down in November, the past two months of nonresidential numbers hint that the worst of the decline in this sector might have passed.
9:48AM Technical Levels : Yesterday's bounce was a good illustration of how deceiving that preceding move lower on light volume can be. In a matter of Thursday's single session, the Nasdaq recaptured the aggregate losses of the preceding five-day pullback. By the end of the day, the Nasdaq had posted a 49-point, 3.7% advance.
From a strictly technical perspective, there were some notable points of interest regarding yesterday's rally. First, with yesterday's close at 1384.85, the Nasdaq just edged out its 50-day simple moving average at 1384.28. Yet also note that before the index even reached its 50-day, the Nasdaq also cleared its 20-day exponential moving average at 1374. Now the reason this is particularly notable is yesterday marks the first close above its 20-day exponential moving average since December 6th, marking a consolidation phase of nearly a month. Keep in mind our last definitive bias shift occurred back on December 3rd when we turned in favor of a near-term bearish bias.
Now those who have been following along remember when we reviewed the Nasdaq yesterday, we had an eye on two straight-line levels at 1345 and 1360. So as it turns out, the index not only cleared what appeared to be that notable level at 1360, it also proceeded to take out two more major moving averages in the 20-day and the 50-day. It's also worth noting that yesterday's close up above a major moving average like the 50-day isn't exactly an insignificant feat considering the index was already extended for a 49-point intraday gain.
So those were the positives, and they were notable positives. Now the catch is this rally occurred on less than stellar volume, not quite reaching 1.3 billion total shares. To place it in its recent context, yesterday's volume was the strongest since December 20th -- a span of seven trading days -- nonetheless, it did leave something to be desired. Just to throw in one additional confounding variable, market internals registered extreme bullish readings yesterday -- advancing volume outpaced declining volume by a 10 to 1 margin.
In the aggregate, yesterday's rally marked the first move with any conviction behind it in some time. Seasonally, the bias favors a move to the upside which suggests the technical work accomplished yesterday may bode well for the near to intermediate term outlook. At this point, the aggressive trader probably wants to lean in favor of additional upside keeping in mind one huge caveat; the immediate bias returns to neutral if or when that 20-day exponential moving average -- currently at 1376 -- is violated on a closing basis. Admittedly, this may set the stage for a false start, but it can also help to avoid missing a massive one-day rally like the one carved out yesterday. If the index would violate that 20-day ema on the close, we'll return to the waiting game, working off the very near-term technical levels.
For those operating on a very near-term basis, a few of the notable technical levels are as follows -- to the downside, look for important support at the Nasdaq's 20-day ema of 1376. That's followed by additional support at 1367 and our well documented straight-line floor at 1360. To the upside, keep an eye on the Nasdaq's 50-day simple moving average -- currently at 1386 -- as a near-term pivot point. After that, the chart is cluttered with all kinds of small resistance points. Look for resistance initial resistance in the area of 1390 to 1392 which matches up with congestion and also marks the upper end of its 10-day Bollinger bands. That's followed by additional overhead in the range of 1398 to 1400 and another notable level at 1411. -- Mike Ashbaugh, Briefing.com
8:37AM Cisco Systems estimates trimmed at Piper Jaffray; target cut to $11 (CSCO) 13.64: USB Piper Jaffray shaves their ests for CSCO, saying they believe calendar Q4 was challenging and that this environment will persist into 2003; firm cuts their FY03 rev est to $19.331 bln from $19.425 bln (consensus $19.141 bln), and cuts FY04 rev/EPS ests to $21.238 bln/$0.60 from $21.666/$0.61 (consensus $20.989 bln/$0.61); firm also cuts their price target to $11 from $12. Separately, firm also cuts JNPR's Q4 and FY03 rev ests down to consensus.
11:14AM Cadence Design (CDN) 9.20 -2.46: Adams Harkness downgrades Buy to MKT PERFORM. Cites sharp decline in firm's estimates, management's expectation of flat bookings growth in '03, and no near-term indication of an improving industry environment.
11:09AM Cadence Design (CDN) 9.25 -2.41: USB Piper Jaffray downgrades Market Perform to UNDERPERFORM . Following last night's significant shortfall pre-announcement for Q402 and Y03.
10:53AM Cadence Design (CDN) 9.20 -2.46: Investec downgrades Hold to SELL . Target $7.5. Cites company's preannounced lower Q4 and 2003 numbers due to license mix shift and bookings softening.
10:06AM Cadence Design (CDN) 9.18 -2.48: Merrill Lynch downgrades Neutral to SELL . In light of new forecasts through the end of Y03 and potential for share price depreciation.
8:03AM Cadence Design cut to Sell at Merrill Lynch following warning (CDN) 11.66:
Updated: 03-Jan-03 - General Commentary - Bolstered by a strong ISM report and by seasonal factors, sector/market staged a broad, powerful advance. Leading the advance were the networking, semiconductor, wireless and telecom equipment stocks.
Though large-caps participated in the rally, investors favored the second/third tier smaller-cap stocks. Again, this should have come as no surprise this time of year when investors often shop for bargains among last year's big losers.
While the seasonal bias might underpin the sector for the next several days, Briefing.com doubts whether techs will be able to sustain the early year momentum. Valuations remain rich, earnings visibility poor and technicals disappointing. Throw in the ongoing uncertainties over war and the economy and it will be very difficult for sector to sustain momentum.
One group which looks particularly vulnerable to Briefing.com is the wireless industry. Stocks have been among the biggest winners since bottoming in October. However, industry fundamentals remain very challenging. Consequently, once investors lose interest in bottom fishing, wireless stocks likely to lead retreat.
Robert Walberg
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